New
Delhi: Last week, the government announced its modified
Export Import (Exim) Policy with much aplomb. Well, the
Exim Policy for the years 2002 to 2007 was already announced
last year and is still in place.
However, keeping
in view the heartening growth of exports during the last
12 months, the government thought of bringing in some
changes in the policy which would lend stability to the
policy and maintain the momentum of healthy export growth.
International trade
fundamentally arises out of what is known as comparative
trade advantages. To understand this principle, let us
go back in time during the days of Independence. During
those days, the products in which India had a comparative
advantage were jute products.
A country like
France on the other hand was strong in manufacturing wines.
Apart from wine, France was also in need of jute products
for its industrial activities. Given the ground realities,
it made sense that instead of manufacturing jute products
in France, the country would be better off manufacturing
wines and import its jute requirements from India. Likewise
India too would be better off manufacturing jute products
and import its wine requirements from France.
This
is how foreign or world trade is driven and this year's
Exim Policy addresses this aspect by recognising services,
textiles, auto, gems and jewellery and agricultural exports
as the engines of growth during the next four years. The
Exim Policy has identified areas in which we have competitive
advantage and also deleted from its thrust focus, items
in which we no longer hold competitive advantage.
As of now, India's
share of the global trade is - hold your breath - 0.67
per cent and the target is that by the year 2007 this
share of the global trade will rise to - hold your breath
again - 1 per cent. A pragmatic and achievable target
even considering that the parameters of world trade may
undergo drastic changes in the aftermath of war.
The Exim Policy
focuses on exports of services, exporters duty free import
of consumables, office and personal equipment, spares
and furniture up to 10 per cent of the average export
earnings in foreign exchange in the previous three years.
By and large a symbolic gesture but it has been welcomed
by the services sector, specially the tourism sector.
For agricultural
exports the government has permitted private participation
in agricultural export processing zones (AEZ). Companies
investing in AEZs have been promised income tax benefits.
The details of the benefits package has not been announced
but it is likely that income tax concessions on a percentage
of the income projected from investment in AEZs will be
granted.
An export processing
zone is essentially a demarcated area or a cluster where
exporters operating in this area are given special concessions
and facilities like offshore banking units which enable
the exporters bring down their transaction costs and to
work in a hassle-free environment. This is a concept which
has worked successfully in China and other countries and
today about 25 per cent of a country's export trade come
from their special export processing zones. It is also
worth mentioning that in China, nearly 40 per cent of
the country's export comes from these zones.
India has tried
to replicate this model and had announced special zones
and clusters in areas like Indore, Kochi, Tirupur, Panipat
and Ludhiana. These zones have not taken off as intended
and the prime reason why such clusters have not taken
off is due to land acquisition problems. However, we have
it from the mandarins in the commerce ministry that all
is well and these zones would be functioning fully in
the current year.
The government
is, along with the fiscal sops, offering infrastructure
support to these units. The department of industrial policy
and promotion has finalised a scheme, which aims to give
common infrastructure back up to small- and medium-sized
units in these clusters so that these clusters function
as a large single unit.
International trade
is just not about exports. Imports are also crucial. As
we export we develop foreign exchange reserves and these
reserves are meant for import of items, which the country
does not manufacture but needs none the less. Today, India
is sitting on huge cache of foreign exchange reserves,
nearly $80 billion and which is increasing by the month.
Such a huge reserve
is actually an embarrassment of riches and recognising
the need to spend these reserves, the government has during
the course of the last year, eased many of the stipulations
laid down for acquiring foreign exchange, both for individuals
as well as businesses.
This Exim Policy
has made the import of second hand capital goods that
are the main vehicles of investment in this country easier.
The government has also announced duty concessions, which
will make the cost of import of capital goods cheaper.
For importing capital goods the manufacturer had to earlier
undertake an export obligation, meaning that the manufacturer
will export a certain percentage of his product to make
good the amount of foreign exchange spent while importing.
Relaxations have now been considered in such export obligations
which will make the manufacturer breathe easier.
The
above packages are at the end targeted to ensure that
that the country's share of the global trade grows at
the rate of 12 per cent per annum and take our share o
from the present 0.67 per cent to 1 per cent by the year
2007. Not a difficult target, considering last years export
growth and keeping in mind the fact that during Independence,
India's share of the global trade was 2.5 per cent, nearly
four times more than what it is today.
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